Sectoral productivity vis-à-vis the US and heterogeneity within the EU27: the role of firm size distribution and firm demographics

Labour productivity growth in developed economies has slowed down during the last decade relative to the pre-Great Recession period. The EU27 has been no exception to this trend, keeping both a large negative gap relative to the US and strong country heterogeneity following an uneven convergence process between Member States. Based on these stylized facts, in this paper we investigate which are the main explanatory variables accounting for productivity heterogeneity within the EU, both in level and growth terms. From a policy perspective, our findings suggest a number of areas in which action seems to be warranted, improving technological adoption, increasing innovation intensity, boosting the capital triad (human, tangible and intangible assets), and, with respect to the two micro-structural characteristics we put a focus on, eliminating barriers to growth in firm size and facilitating the entry and exit of enterprises. These same recommendations are even more valid in the specific case of business services, for which productivity performance and convergence seem more sensitive to progress in those policy areas.JRC.B.5-Circular Economy and Industrial Leadershi